Question

Units to Earn Target Income Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense).Required:
Be sure to read the instructions on each panel for additional guidance.


1. Calculate the number of helmets Head-First must sell to earn operating income of $81,900.

2. Check your answer by preparing a contribution margin income statement based on the number of units calculated

Answer 1

Explanation:

1. The computation of the number of helmets sell to earn operating income is shown below:

= (Fixed expenses + target profit) ÷ (Contribution margin per unit)  

where,  

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $75 - $40

= $30

So, the number of helmets sold is

= ($49,500 + $81,900) ÷ ($30)

= 4,380 helmets

2. And , the contribution margin income statement is presented below:

Sales (4,380 helmets × $75)                     $328,500

Less: Variable cost (4,380 helmets × $45)  ($197,100)  

Contribution margin $131,400

Less: Total fixed cost (49,500)  

Net income                $81,900